Harvey Gulf’s Bold Vision: a Big Win for Everyone

Shane Guidry and Harvey Gulf team up with leading industry naval architects, engine suppliers, classification societies, regulatory bodies and a host of others to bring U.S. Gulf of Mexico offshore energy into the 21st Century – and beyond.

Often out in front of the competition in many ways, Harvey Gulf International’s effort to build a new class of dual fueled LNG-powered offshore supply vessels (OSV’s) again raises the bar higher for those competing in the U.S. Gulf of Mexico offshore markets. Among the first to be classed under the ABS Guide for Propulsion and Auxiliary Systems for Gas Fueled Ships (May 2011), the vessels will be the first dual fueled LNG-powered vessels under US flag. The new vessels will also receive environmentally-friendly notations from ABS.

With construction already underway at Mississippi-based TY Offshore, Harvey Gulf International has four of the DP-2 rated (302’ x 64’) Dual Fuel Supply Vessels on order, with options for two more. The expected delivery date for the first hull could come as soon as mid-November 2013, with the others following in close order (every 3.5 months) after that. What comes next may be the beginning of a remarkable transformation in how business is done in the competitive U.S. GOM trades.

Deep Experience: Rooted in Safety First

In 2000, Wärtsilä was in on the ground floor of LNG propulsion in Norway. Working with the local directorate there (Coast Guard equivalent), they were initially turned down, but having defined the risks and then working with DNV, the first vessel with natural gas was built – the Viking Energy. Back then, there was no precedent and classification rules had to be written from scratch. Today, and with class rules well developed, the only variable rested in the fact that the U.S. Coast Guard hadn’t done it before. But, according to the Coast Guard itself, until regulations can put into place, they would be guided by IMO Resolution (MSC.1 285-86), Interim Guidelines on Safety for Natural Gas –Fueled Engine Installations in Ships.

Peter Jacobs, General Manager for Wärtsilä North America recalls the early days of the project. “They (Harvey Gulf) called us and we developed the overall solution together. The engine technology didn’t change from what we had in Europe.” This dated back to Wärtsilä’s early visionary, Trgve Eiken of the Wärtsilä Design Ship Group, and the Viking Energy, which entered into service back in 2003. He added, “So, yes, it is new to the Gulf of Mexico but not new to Europe. That vessel has not lost one hour of downtime due to this equipment since it has been commissioned.”

Mike Carroll, Vice President of STX US Marine told MarPro in July, “The short story is that there is technology out there that Harvey Gulf was looking to offer its clients, giving them options, better rates and better opportunities. So, we worked very close with all parties putting together this concept. This involved ABS and the Coast Guard. We looked at all the manufacturers that were offering dual fuel systems and ultimately settled on Wärtsilä. Once we had the first concept together, we met with ABS to put together a plan to get this in front of the Coast Guard.”

From the outset, safety was the key. Bill Lind, Director of Technology and Business Development on Marine side of ABS, said, “One of the things that has made this project so successful was that we could work very closely with a small group of people with the Coast Guard who are up to speed on the international requirements, and where they were going with their own. The Coast Guard’s big concern involves bunkering.”

Often, however, a stellar safety record in one aspect of a particular area – in this case LNG – when applied to another application, does not translate over with it. Lind continued, “So, STX, ABS, Harvey Gulf and the Coast Guard, too have taken a conservative approach to this design, to set the safety bar for the other supply vessels that follow it. For example, Harvey Gulf could’ve slid the fuel tank under the accommodations but they did not. They could’ve used single wall piping instead of double wall piping – but they didn’t. And where others – some in Europe, for example – are using self-certification of some components, Harvey Gulf agreed with the Coast Guard that it did not make sense.”

As the project moved forward, it was clear that it would be unlike anything that had come before it. Lind neatly summed up the process, adding, “The design and engineering had to be done up front. This has not been a case of throwing something together based on need; it has been a case of all the major players sitting together at the table with multiple meetings to solve issues as a team. It has been a large change in how these vessels are built.”

Cutting Edge Design

Many variables for these vessels had to be considered, including the extra weight involved, more space required for the bunker arrangements, special handling requirements for LNG and the positioning of the bunker tanks themselves. To that end, STX introduced its (patent pending) design which Carroll characterizes as “the functional arrangement of a dual fuel OSV.” He added, “The engine meets the latest IMO EPA requirements, but the most important thing is the integration of the LNG system and deciding how that system is most efficiently arranged within the ship. It is not an overly complicated system and from a regulatory framework, the IMO Interim Guidelines was available at the start of the project. We put together a design basis with input from Wärtsilä and ABS, anticipating how to approach the Coast Guard. This gave the Coast Guard the design framework that we intended to follow and allowed them to confirm, deny or modify what we needed to do to make the project work. The recent USCG policy letter on gas fueled vessels is a result of the design basis submitted for this project.”

As the boats are built, Wärtsilä is on site in the shipyard in an advisory role. And because the engine itself has no real quirks, it is just like installing a diesel. Wärtsilä’s Jacobs said “The only real difference is the fuel piping that’s double-walled, but with the engine itself, there’s no difference for the shipyard. The learning curve is going to be a short one.” But, the process is a new one for U.S. shipyards, and it is likely that the shipyard involved in the first hulls – in this case, TY Offshore – could have the upper hand in future contract bids.

The bunker system, LNG tanks, piping, the electric drive system and the drives themselves, the motors themselves – are all mapped out by Wärtsilä for the design package. Jacobs adds, “In this case, we’re doing the whole vessel control system, so we’re taking control of the ballast system, power management system, the automation system – it’s a complete, integrated package. So, for the shipyard, their risk is minimized, because they – for this aspect(s) of the vessel, they have one vendor to talk to.”

Problems that Never Were

Whereas many U.S. owners can find any number of reasons to not go ahead with this kind of project, Harvey Gulf’s Shane Guidry found every reason to proceed. And, problems anticipated by others turned out to be, for the most part, non-factors. Chad Verret, Senior Vice-President, Alaska & Deepwater Operations for Harvey Gulf explained why.

“As a charterer, the customer typically provides fuel. So, we’ve got a tender out there that says, for example, a major oil company will provide their own LNG. We’ve been approached by a few customers that we’ve pitched boats to and they are saying, ‘Where are we going to get LNG?’ We’ve told them that we will secure a reliable source of LNG and facilitate that for them. This means that we’ll make sure the fuel is available. I can pick up the telephone today and make sure there is a truckload of LNG in Port Fourchon in 48 hours. There is a reliable source of LNG available today.”

Bill Lind paints a similar picture. “Five to ten years from now, we won’t be having conversations about the availability of LNG. It will be a moot point. Availability will be there, especially given the variety of projects going on, across different vessel types. Those pressures all ensure that the distribution system will be a moot point.”

In terms of supply and safety, Harvey Gulf made no decisions in a vacuum. Instead, Verret visited Norway and Finland earlier this year and met with the operator of four LNG powered PSV’s (with a fifth under construction). Verret told MarPro in July, “They have a number of sites set up for LNG refueling; shore supported facilities and truck supported operation. In place for ten years, these operators have not had one LNG-fuel related incident or equipment failures, during bunkering or underway.”

A typical supply boat not only carries diesel fuel, but also diesel fuel as cargo. So, volumetrically, there are usually tremendous amounts of diesel on a PSV. With regard to the LNG vessels, the LNG tank itself is a 290m3 tank which volumetrically holds +/- 68,000 gallons of LNG, giving the vessel about 10 days of transit speeds at 12 KT. The engines use 1 percent diesel fuel as pilot fuel. Verret adds, “Because it is dual fuel and if we have an operational scenario that’s beyond that, we can also transit in diesel mode and then switch to gas mode once we get on station.”

LNG Advantages: the list is endless

Harvey Gulf CEO Shane Guidry sees considerable upside to this leap of faith. He’ll need to, because the cost of these vessels is about 16 percent higher than conventional OSV’s. But, the payback promises to be remarkably swift. Wärtsilä’s John Hatley explains, “Based on business case studies that we have done, the more energy the vessel consumes, the faster the benefits accrue with the lower cost LNG. For OSV’s, that payback of the additional costs can be in the vicinity of just 2-3 years. This is not uncommon. This is also quite dependent on the price estimates for future distillates costs. Obviously, the greater the difference in price between LNG and distillates, the faster the payback can come. And, of course the busier the vessel – the service cycles will come into play. But this isn’t just a matter of dollars; it’s also about the future emissions regulations. This includes ECA’s, and sulfur requirements being pushed out of the fuel. All of these variables will come into the decision process.”

For now, the fuel source is significantly cheaper. Verret adds, “We’ve got quotes for a truck-based refueling operation at $1.85 per gallon diesel equivalent. Diesel is about $3.35 per gallon equivalent today. This is significant when you are talking about a boat that burns 4,000 – 6,000 gallons of fuel per day.”

Other dividends abound: running in gas mode significantly reduces the wear on engines. A vessel operated largely in gas mode will extend the life of the engine. Wärtsilä’s Jacobs has been involved in the project since the beginning. As the first manufacturer of dual fuel engines for commercial marine markets, no one arguably has more experience with this technology. Jacobs insists, “When operators pull cylinders for major overhauls, the engines show very clean with very little carbon buildup and that’s what causes the wear on the engines. Harvey Gulf, for example, will have a condition-based maintenance program. After the first major overhaul and based on close inspection of components, they might be able to extend the next overhaul interval dramatically. Harvey Gulf will be connected to a remote monitoring service whereby data from all over the vessel will be logged, trended and analyzed.” Jacobs adds, “Our computers crunch those reports on a daily basis at our facility, and any red flags will be scrutinized by appropriate personnel to see if there needs to be some sort of interruption, or a call to the vessel itself.” The data feeds will be done via satellite, likely via live data stream.

Balancing the Green

In terms of environmental performance, the decision to go ahead with the dual fuel option was an easy one. That’s not to say that there weren’t trade-offs. Verret explains, “In gas mode, the engine currently exceeds the IMO Tier III level for category III engines by about 85%. We’re confident that we’ll meet Tier IV levels when that does happen. Originally, we tried to go with a smaller, lighter engine to fit our application, but we decided to go to the category III engine.” Because the weight of the engines and gensets were three times as heavy as other conventional equipment, the ‘tween deck heights had to be adjusted by as much as much as 5.5 feet. Verret says that although they lost a little deadweight capacity in the process, OSV’s have fairly high deadweight ability in general. He admits, “We lost a little, but we did make the boat ten feet longer. So, the net difference is not all that much.”

Gathering Momentum

In the smooth wake of Harvey Gulf’s bold move to dual fuel technology, a torrent of activity for a wide range of marine applications has been seen. In July, Tokyo-based Mitsubishi Heavy Industries, Ltd. (MHI) announced plans to begin developing low-speed, dual-fuel, marine diesel engines capable of using not only conventional heavy oil but also natural gas for their fuel. Scheduled to be launched in 2015, MHI also aims to reduce the economic and environmental burden on ship operators.

In August, Washington-based Totem Ocean Express (TOTE) announced an $80 million conversion from diesel to LNG for two 840-foot containerships. TOTE insists that the conversions will pay off well prior to retiring the vessels. Approved by the U.S. Coast Guard, the conversion involves installation of enough fuel capacity for the vessels to make their usual Washington to Alaska roundtrip. Faced with coming rules stipulating low-sulfur distillates that promised a 25 percent fuel price hike, the move makes a lot of sense.

And then, there’s Netherlands-based Veka-Group’s announcement that it had developed three new LNG tankers, which can also be used as bunker ships. One, an LNG inland waterway bunker ship, is the first of its type. Propelled almost completely on ‘boil off,’ it is billed as an “emission-free” vessel. Veka expects the use of LNG by ships for coastal and inland shipping to increase markedly in the near term. The LNG inland shipping bunker tanker is expected to debut in late 2013.

Separately, ABS in the Americas alone has about twenty projects where people are watching Harvey Gulf. Bill Lind adds, “We’re talking to ferry boat operators, supply vessel operators and Jones Act people. This sort of thing is always going to be easier if you know that the vessel is always coming back to the same port for bunkering. So, supply vessels and ferries will likely be first out of the gate. In other places, it won’t be so much about economical concerns, it’ll be a scenario of ‘go clean or you can’t operate.’ The Great Lakes is one of those places. But no one is going to change to LNG on a vessel with only five years of service left in the hull. It’s more expensive to install these systems then conventional engines.”

Public perception will also play a role in whether LNG will fly in a particular market. Port Fourchon, LA, for example, will probably handle it better than a residential community with ferry service where someone is proposing an LNG terminal. Globally, the marine experience for dual fuel engines exceeds 500 engines employed on more than 125 vessels. In terms of marine experience alone, more than 4 million largely trouble-free hours have been logged. Still, the Harvey Gulf project might be perceived by some as something new and risky. In reality, it is anything but.

Only One Obstacle, but Unlimited Upside

When it comes to the Harvey Gulf project, all of the players could agree on one thing: Shane Guidry the lynchpin of the deal. Peter Jacobs told MarPro in July, “Finding an owner who was aggressive enough to move forward was the key. Shane Guidry is that man. He made a brilliant business decision. We go to conferences and speak to owners who always have hesitation, thinking of any number of reasons why it can’t be done. Guidry took the step to just do it and within a very short period of time, he had many potential sources of gas identified. He put himself in the driver’s seat.”

Guidry’s vision extends to places most in the U.S. markets wouldn’t bother to go. Taking lessons from what the Norwegians are already doing, the Harvey Gulf vessels will be fitted with state-of-the-art accommodations. According to Mike Carroll from STX, “These will be on par with any four star hotel you could go into. The Gulf of Mexico and North Sea markets grew up separately. Over the years, they’ve gotten closer. So, the vision goes beyond the GOM itself, Shane Guidry wants to be able to position his boats anywhere in the world and be on par with the competition – foreign or otherwise. They’ve incorporated the best of both into these hulls.”

Operators like Harvey Gulf and TOTE are today plotting a course for others to eventually follow in their wake. But, with all we know today, you have to wonder what the others are waiting for.